Flexibility

Over the last decade Montenegro has trebled its gross national income (from $2,400 in 2003 to $7,160 in 2012), has reduced its national poverty headcount from 11.3 percent in 2005 to 6.6 percent in 2010, and enjoys the highest per capita income among the six South East European countries.

Despite this considerable progress, however, Montenegro remains a country in need of a new economic direction. The global financial crisis has exposed Montenegro’s economic vulnerabilities and has called into question the country’s overall growth pattern. The period between 2006 and 2008 was characterized by unsustainably large inflows of foreign direct investments (FDI) and inexpensive capital, which fueled a domestic credit consumption boom and a real estate bubble. When the bubble burst in late 2008 and in 2009 real GDP shrank by almost 6 percent, triggering a painful deleveraging and a difficult recovery that is not yet complete. With the base for Montenegro’s growth narrowing and the country’s continued reliance on factor accumulation rather than productivity, it has become clear that this old pattern cannot deliver the growth performance seen just a few years ago.

As spelled out in the recent report “Montenegro – Preparing for Prosperity” this country can go a long way toward returning to the impressive economic gains it was making just a few years ago by emphasizing three critical areas of development: sustainability, connectivity, and flexibility.